Retail Round-Up: Target, Staples, Abercrombie and Chico’s Post Strong Business Activity
Staples Inc. (NASDAQ:SPLS) reported this morning that its fiscal second-quarter profit rose by 36% on stronger North American sales and a lower tax rate. The office supplies company also raised the low end of its full-year profit forecast. Competitor Office Depot Inc. (NYSE:ODP) got a boost today after UBS (NYSE:UBS) raised its rating on the company from “neutral” to “sell”, while OfficeMax (NYSE:OMX) shares have been flat.
The office supplies sector is closely tied to employment trends, as it relies heavily on orders for computers, paper, and printing products from businesses. However, office supplies stores are also popular among back-to-school shoppers, as they provide a larger variety of products than less-specialized retail stores like Target (NYSE:TGT), so with fall just around the corner, they should expect an uptick in sales.
Staples’s net income rose to $176.4 million, up from $129.8 million a year earlier. Sales grew 5.2% to $5.82 billion, beating analysts’ expectations of $5.64 billion. North American delivery sales rose 3.1% in the second quarter to $2.4 billion, with double-digit growth in facilities and break-room supplies. North American retail sales rose 1.7% to $2 billion. International sales climbed 15% to $1.3 billion.
Chico’s FAS Inc. (NYSE:CHS) plans to acquire Boston Proper Inc. for $205 million, a privately-held women’s retailer. Boston Proper posted net revenue of roughly $110 million in 2010, a double-digit percentage increase over the previous year. The deal is expected to close within 45 days, with Boston Proper operating as a stand-alone division within Chico’s. The two brands will combine marketing, circulation and sourcing efforts, and Chico’s hopes the acquisition will immediately add to its earnings in the first full year of operations.
Abercrombie & Fitch
Abercrombie & Fitch (NYSE:ANF) reported second-quarter earnings rose 64% as sales soared for the higher-end teen-apparel retailer. However, rising costs hurt margins, and chairman and CEO Mike Jeffries expects that “costing pressures will be greater in the second half of the year.” One of the more expensive teen clothiers, Abercrombie has lowered its prices somewhat lately, in order to compete, but like many retailers, will probably have to increase prices as raw material costs continue to climb.
Abercrombie reported a profit of $32 million in the second quarter, up from $19.5 million a year earlier, beating forecast earnings of 30 cents a share by 5 cents. But gross margins fell to 63.6% from 65.1% as the cost of goods rose 28%. Still, if the company can manage to adjust pricing to help margins without scaring off customers, its fortunes could turn rather quickly.
The company reported a 23% increase in sales, with same-store sales up 9%. Abercrombie’s three brands — Abercrombie & Fitch, abercrombie kids, and Hollister Co. — saw same-store sales increase 5%, 7%, and 12%, respectively. U.S. sales rose 12% while international sales climbed a staggering 74% and direct-to-consumer sales climbed 28%.
Target Corp. (NYSE:TGT) reported a better-than-expected second-quarter profit increase of 3.7%, with consumers spending more per transaction and fewer bad debts weighting down profits in its credit card segment. The company raised its full-year outlook above Wall Street’s expectations, and forecasts profit of 70 to 75 cents a share in the third quarter, and $4.15 to $4.30 a share for the year.
Target’s net income climbed from $679 million, or 92 cents a share in the year-earlier period, to $704 million, or $1.03 a share, during the second quarter of fiscal 2011. Sales climbed 5.1% to $15.9 billion, with comparable-store sales up 3.9%.
So what has Target been doing to increase U.S. sales when competitors like Wal-Mart (NYSE:WMT) have watched domestic sales plummet? Target has been increasing its fresh-food assortment in order to attract more customers looking to do all their shopping in one place, and has also been giving users of its store card a 5% discount on any store-brand purchases. The average transaction size increased 3.5%, and selling price per unit rose 1.7%. The overall number of transactions also increased, up 0.5%.